IN DEPTH: Bushveld Minerals Planning Dividends Alongside JSE Float

(The following article is an example of executive interviews by Alliance News journalists. Our IN DEPTH reporting is available only on Alliance News professional services.)

29 Nov 2018, 09:47:33 GMT

LONDON (Alliance News) – Bushveld Minerals Ltd will soon be outlining plans for future dividends, alongside its “priority” of a listing on the Johannesburg Stock Exchange.

Bushveld, which produces 3% of the world’s vanadium and hopes to increase this over 5%, has the producing Vametco mine in South Africa’s North West province, as well as the exploratory Brits and Mokopane mines in North West and Limpopo respectively.

The company is led by Chief Executive Fortune Mojapelo, who has previously helped develop several junior miners in Africa.

“We will be outlining a capital allocation structure which will explain and outline our dividend policy,” said Bushveld’s Head of Investor Relations Chika Edeh, speaking to Alliance News at the Mines & Money conference in London this week.

“We are committed on explaining to shareholders when they can expect a dividend, however, our dividend structure will take into account that Bushveld is still a growth story.”

She did not give a timeline for when dividends might be paid, but an announcement is expected to be made by Bushveld in the next few months.

The exact amount will, Edeh said, be dependent on the vanadium price as well as projected earnings and cash flow.

Vanadium prices, Edeh continued, are currently between USD125 and USD130 per kilogram, having risen over 400% in the past two years.

In its most recent results, released in September for the first half of 2018, Bushveld posted earnings before interest, tax, depreciation, and amortisation of GBP31.7 million on revenue of GBP62.1 million, with no comparables due to production starting between the two periods.

For that six months, the average price of ferrovanadium was USD65.5 per kilogram, well over double on what it was a year before, but half of what has been seen recently.

This dividend plan comes as Bushveld looks to complete a listing on the JSE, something that has been already announced but is now a “priority”.

Edeh said: “What we’ve said is first of all we are planning to list on the JSE. Bushveld is a South Africa story, our assets are in South Africa, management is from South Africa, so we are planning to list on the JSE.

“The work has commenced. That’s something we will be progressing and planning to do soon. We haven’t provided any dates but this is a priority for us.”

“There is a growing demand in the [Bushveld] story from South African investors,” Edeh continued, “and a lot of cash in South Africa. We find investors want to deploy that in key stories and Bushveld is one of those.

“We have had a number of institutional investors wanting to take a position in Bushveld but to do so we have to be listed on the JSE.”

Bushveld’s targets in the short- and medium-term are to increase vanadium output to 5,000 metric tonnes a year and 10,000 metric tonnes respectively, from the current projection for 2018 of between 2,600 metric tonnes and 2,650 metric tonnes.

It has completed its phase two expansion plan at Vametco, and Bushveld has now begun phase three. To get to 10,000 metric tonnes a year, the company is looking at either building a new USD100 million kiln at Vametco or buying brownfield sites nearby, or even both.

Bushveld will look solely at South Africa for acquisitions, Edeh said, commenting: “South Africa is the natural territory we are looking at. It is the region with the largest deposits in terms of resources and there are so many idle facilities around Vametco”.

This aim to increase output, Edeh added, is part of a plan of allowing Bushveld to capitalise on growing demand.

“The vanadium market is in a deficit because supply is concentrated and limited and there is a growing demand from the steel industry, especially with the new regulation in China which kicked in this month.”

“This regulation is expected to increase demand by 10% to 15%, as China counts for over half of all vanadium consumption. There is also growing demand for batteries, which is expected to account for 44% of vanadium demand by 2027,” she continued.

“We expect demand both for the steel industry and for redox flow battery deployment to increase, but we believe the only people able to close the supply and demand gap are pure-play vanadium producers which are us, Largo Resources, and Glencore”.

Largo is a Canadian firm which operates the Maracas Menchen vanadium mine in Brazil’s Bahia state. It is expected to produce between 9,150 tonnes and 10,150 tonnes of vanadium oxide this year.

Currently, Edeh said, around 70% of the world’s vanadium is produced as a by-product by coal companies, and they cannot increase vanadium output as their operations are guided by steel demand.

Looking at trade tensions, mainly between the US and China, Edeh said these will not affect sales too much, with only 3% of the company’s product going to China.

Bushveld’s recent production has been disrupted by strike action, but Edeh said this is now resolved.

“We had a two-week industrial action. This was more of a legacy issue, it was around the employee share ownership payment structure,” she said.

“We solved this with workers in September and it was a matter of putting in an employee share ownership payment with workers. Our policy is to make sure all stakeholders participate in the performance of Vametco,” she continued.

“When it is performing well, we want to make sure everyone is part of this upside.”

Earlier November, Bushveld did cut its 2018 output guidance as a result of this industrial action. It now expects between 2,600 metric tonnes and 2,650 metric tonnes of vanadium, from 2,850 metric tonnes and 3,000 metric tonnes before.

However, with production costs just USD20 per kilogram and the vanadium price soaring to well above USD100 per kilogram, Edeh said the second half of 2018 can only be expected to be “an even stronger cash generative period”.

Bushveld will fund expansion mainly through its own cash flow, while it does also have the options of debt and equity. It currently has no debt, and Edeh said any taken on would be done so very conservatively.

South Africa has been battling to introduce a new mining charter recently, a key part of which would set a minimum 30% black economic empowerment ownership for any miner in the country.

Bushveld’s currently sits at 26%, after a B-BBEE deal in September, and it plans over the next few years to increase this to the new minimum.

Edeh said the firm is “very supportive” of the new mining charter, believing it provides a good way for miners to do business in South Africa.

Looking at Bushveld’s other two businesses, Bushveld Energy and Lemur Holdings, the energy arm hopes to deliver its first vanadium redox battery to state-owned power firm Eskom by the end of 2018, before expanding its sales pipeline in South Africa.

Bushveld Energy also wants to set up an electrolyte plant in South Africa, as well as design a vanadium electrolyte rental product.

Lemur is, Edeh said, to operate separately from the two core businesses.

“Our plan is to make sure Lemur has a life of its own, so we can focus on Bushveld Vanadium and Bushveld Minerals”.

“There are different options. It could follow the same path as AfriTin Mining, which used to be our tin platform.”

AfriTin, in which Bushveld now owns around 10%, joined the London Stock Exchange a year ago, having been set up to run Bushveld’s tin business as a separate entity.

Bushveld shares were trading 1.8% higher on Thursday morning at a price of 43.50 each. A year ago, a Bushveld share was worth 7.63p.